Recently, Team NoshPlanet (well, one of us who happened to be in the country at the time) had a terrific opportunity to spend some time over a few weeks with the nice people at The Difference Incubator, mixing up and pulling apart and ultimately re-shaping how we explain the way NoshPlanet will make the difference we are shooting for – helping sustainable restaurants and cafes become more profitable by helping hungry people find them, trust them and eat at them. I thoroughly recommend TDi’s process to any social enterprise who’s looking to sharpen their focus and come up with ways to describe yourself way better than you did yesterday. It was also a great opportunity to meet and spend time with other social enterprises, many of which are already doing great things in the ‘make a difference’ space.
Of course, in order to make a difference, there’s this other mysterious stuff you need to make to give you the capability to bring about the change you want, and that stuff is money. So, unless you happen to have a bunch of cash sitting down the back of the couch that you’d forgotten about (I just checked ours: 70cents and a pencil), most social enterprises need to go and find some from other people who have much deeper couches. To help this along, part of the TDi experience was to have the opportunity to pitch to a panel of “dragons” – in this case, people who are real investors by day, and who volunteer their time and expertise to help social enterprises hone their pitch to make it better next time, when you might be wooing a dragon of your choosing. And as all our friends, colleagues and partners know, we’re on the lookout for a dragon or two with deep couches, so off we went to meet some.
I’m not going to bore you with a blow by blow of the night, but suffice to say it was great fun and an amazing chance to practice our pitch, along with @NickMackay and @HAndUpAu who I would encourage anyone interested in other world-changing stuff to take a look at too.
Here are the three of us on the night (piccy from Bessi Graham @ TDi):
What I do want to share is my reflection of the evening that I recorded when I sat down on the train home. I wrote down what I had learned and what wisdom I had received. My list ended up looking something like this:
20 Things I Learned Tonight:
1. Don’t underestimate how much it will cost to get the show off the ground. Apparently this is a common phenomenon. We all like to think we can run amazing enterprises on nothing more than a case of noodles and a 5 year-old iMac, which of course is just silly. Be realistic with your costs, not romantic. Romance rarely makes money, unless you’re Mills and Boon or some sort of teen vampire fiction factory, which we’re not.
2. Know your cost of acquiring customers and how this scales down over time as the business scales up. This is typically one of the big underestimates, and for social enterprises that require customers (what enterprise doesn’t?), knowing what it costs to get them needs to inform what you need to get from them! Simple math, but essential math.
3. Model your financials to include all your expected funding rounds. Know exactly when this money (i.e., the money you are pitching for now) will run out, what happens the day after that and what that means if you haven’t then secured the next round.
4. Project your best- and worst-case scenarios for shares – dilution, value etc, including the effects of future rounds. Early stage investors are particularly eager to see where they sit in the scheme of things and will be understandably cautious about being first if it also means being the investor that gets the hell diluted out of them in subsequent rounds.
5. NoshPlanet is a really great idea that we should definitely pursue! (Seriously, that was feedback, so it made it to the list. I mean, who wouldn’t include that?)
6. Just because people don’t like paying money for apps, doesn’t mean you shouldn’t consider charging for it. If you charge for your product, show how you arrived at the price. If you don’t, explain why. If your business model is two-facing, or freemium (ours is both: our customers are the listed eateries and our app users create our value to those eateries), show the dependencies between the various pieces – these dependencies can make or break the model.
7. Be clear on who is paying to achieve the ‘social’ part of your enterprise. In NoshPlanet’s case, part of our social benefit will be that Noshers (the people using the app to find sustainable and ethical restaurants and cafes) can vote on community food projects, and donate their loyalty points to those projects. Those donated points will be ‘converted’ into real dollars that will flow to the projects. Those real dollars will need to come from the business, so we need a points:$$ ratio and show where that will be funded from in our cash flow. For a social enterprise, you need to show the potential investor that part of their money will be used for this, and you need to convince them that it is providing value and benefit.
8. Numbers can always be bigger. We have around 1000 restaurants and cafes listed on the NoshPlanet app at present, and every one of those meets the criteria of one or more of our Trust Partners, including Rainforest Alliance, Seafood Watch, Fair Trade USA and Green Seal. (We also recognise USDA Organic certification but have no relationship with that agency.) But even though those 1000 eateries are hand-picked and scrutinized, which makes them a very high-value niche list, 1000 is still a number than can be doubled, or tripled, or increased by a factor of 10 or 50. The bigger the number, the more impressive (and attractive) it will be. It will also increase your pre-money valuation (see point 12).
9. It pays to ask for connections and referrals.
10. It pays to ask again the day after. (OK, you got me, I added this one the day after).
11. Know everything, and if you don’t, be ready to explain why you don’t. (Simple, huh? Just “know everything”. That should take, oh, about 15 minutes later on today, right?)
12. Have a valuation ready. Yes, it’s art and science and black magic all mixed in, but going through a process will at least show that you’ve given it some thought.
13. Use comparisons to help your valuation. For example, “right now we’re worth x% of Urbanspoon’s value because of [a, b and c] that we have in common, and then there’s [d, e and f] that’s unique about us that will give us a higher valuation when we complete milestone [G]. Or if you compare us to Yelp, we sit at about n% of their value because of [l, m, n, o and p]” .
14. Whatever your secret sauce is, that’s the part of your social enterprise that you should be spending a great deal of time, energy and money making stronger. Especially for social enterprises, the sauce is often in the relationships that make the business model turn. For us, it’s our Trust Partners – they give NoshPlanet’s listings the independent authority that set us apart from any other food-finding app. We need to look after them better. (Note to Trust Partners: expect more mail from us, we really do love you!)
15. Show that you’ve explored a range of business structures that meet the needs of the business first, and investors second. Why are you a Pty Ltd or an LLC? What will becoming a B-corp really help you with? Is there a good reason not to consider an L3C structure? Is C-corp the only answer?
16. If you’re pitching in the Valley, take a lawyer with you, especially if your idea is a really good one. (We’ll take that as an endorsement of point #5…)
17. Don’t confuse talent with investors. That’s not to say investors aren’t talented, but if you have a need for additional technology or community-building or some other specialist skill, you’re very unlikely to convince a skill-based company to buy into your company for a piece of action. They’re not in the business of investing, they’re in the business of selling their skills. Pushing this uphill can eat up a lot of your time. Instead, find investors who understand the value of those skills, and match your investment ask (or part of it) to the cost of buying in those skills.
18. Explain your returns model and timing for your potential investors – will they get dividends? Or increased value that can only be realized on an exit event? Or both?
19. Look to your big scary competitors as potential investors. For example, Open Table invested in Food Spotting and then bought it. They’ve recently acquired Rezbook from Urbanspoon and Open Table is now the booking provider for Urbanspoon. Competitors don’t and shouldn’t necessarily hide from each other. Related companies can often be interested in funding development of something that they might eventually buy.
20. Segment your customer segments. Be as granular as you can possibly be. Don’t just profile and quantify the big amorphous mass; profile and quantify as many components of that as you can – including by location or micro-niche or the colour of their shop-front if you can.
All of a sudden, my to-do list became a little fatter, but I know that the exercise it needed was going to make us much, much stronger and ready to woo some serious dragons out there in the near future. And as this all happened a couple of weeks ago, we have already addressed many of these points and are almost ready to go out again into the big wide world…
Is that all? No. Before I hear “What? there’s a huge bunch of stuff missing from this list!” – of course I’m not suggesting that these are the only things that an aspiring pitcher needs to consider; that would be incredibly naive and stupid of me at the same time. No, these are just some of the things that we are working on to improve ours, or to make sure we have these essentials sitting in our back pockets when we go talk to people we’d like to join us on our journey. Everyone’s approach is different, but if there’s anything here than can help you too, well, that’s what this post is for.
We’d love to hear your thoughts on these, but while you’re pondering, did we mention that you can download the NoshPlanet app for free, here? Do that and you can eat like the world depends on it! And if anyone reading this is reaching down the back of the couch, we’d be more than happy to help you get whatsoever is down there out and into a more useful place.
Acknowledgements: Big thanks to all who have helped us along this part of our journey: Paul Steele from DonkeyWheel Foundation, Bessi Graham & Isaac Jeffries from TDi; to PwC for their generous provision of a scholarship to help get us to TDi; and to the two Dragons who gave (and continue to give) so generously of their time and experience: Lee Brennan of Ethical Investment Services; and Will Richardson of Impact Investment Group, part of the Small Giants family of companies. Everyone mentioned here has no formal association with NoshPlanet. This is a true story and a personal reflection, nothing more, so don’t rely on it for anything except light entertainment.